Attached files
file | filename |
---|---|
8-K/A - Be Active Holdings, Inc. | q1100939_8ka-beactive.htm |
EX-99.3 - PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 - Be Active Holdings, Inc. | q1100939_ex99-3.htm |
Exhibit 99.1
Be Active Brands, Inc. audited financial statements for the years ended December 31, 2011 and 2010
TABLE OF CONTENTS
Page
|
|
Report of Independent Registered Public Accounting Firm
|
1
|
Financial Statements
|
|
Balance Sheets
|
2
|
Statement of Operations
|
3
|
Statement of Changes in Shareholders’ Deficiency
|
4
|
Statement of Cash Flows
|
5
|
Notes to Financial Statements
|
6
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Be Active Brands, Inc.
We have audited the accompanying balance sheets of Be Active Brands, Inc. as of December 31, 2011 and 2010 and the related statements of operations, cash flows and changes in shareholders’ deficiency for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards established by the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Be Active Brands, Inc. as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the two year period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. Management’s plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Friedman LLP
December 7, 2012
Marlton, NJ
1
BE ACTIVE BRANDS, INC.
|
||||||||
BALANCE SHEETS
|
||||||||
December 31,
|
||||||||
2011
|
2010
|
|||||||
ASSETS
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$ | 59,653 | $ | 169,191 | ||||
Accounts receivable
|
88,793 | 97,455 | ||||||
Inventory
|
296,991 | 203,935 | ||||||
Prepaid expenses and other assets
|
10,339 | 57,000 | ||||||
Property and equipment, net
|
1,132 | 772 | ||||||
Total current assets
|
$ | 456,908 | $ | 528,353 | ||||
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
|
||||||||
Current liabilities
|
||||||||
Notes payable, related parties
|
$ | 188,001 | $ | 141,079 | ||||
Accounts payable
|
128,411 | 68,726 | ||||||
Accrued expenses and taxes
|
31,638 | 32,196 | ||||||
Due to officers
|
347,597 | 347,597 | ||||||
Total current liabilities
|
695,647 | 589,598 | ||||||
Shareholders' deficiency
|
||||||||
Common stock
|
||||||||
Class A, 1,000 authorized shares issued and outstanding, at $0.00001 par value
|
- | - | ||||||
Class B, 390 shares authorized, 265.6 and 45.6 shares issued and outstanding
at December 31, 2011 and 2010, respectively, at $0.00001 par value |
- | - | ||||||
Additional paid in capital
|
1,329,000 | 229,000 | ||||||
Accumulated deficit
|
(1,567,739 | ) | (290,245 | ) | ||||
Total shareholders' deficiency
|
(238,739 | ) | (61,245 | ) | ||||
Total liabilities and shareholders' deficiency
|
$ | 456,908 | $ | 528,353 |
See notes to financial statements
2
BE ACTIVE BRANDS, INC.
|
||||||||
STATEMENTS OF OPERATIONS
|
||||||||
Year Ended December 31,
|
||||||||
2011
|
2010
|
|||||||
Net Sales
|
$ | 1,421,954 | $ | 877,705 | ||||
Cost of Goods Sold
|
1,506,921 | 584,319 | ||||||
Gross Profit (Loss)
|
(84,967 | ) | 293,386 | |||||
Operating Expenses
|
||||||||
Selling expenses
|
717,350 | 383,854 | ||||||
General and administrative
|
458,459 | 84,285 | ||||||
Depreciation and amortization expense
|
308 | 514 | ||||||
1,176,117 | 468,653 | |||||||
Loss from operations before other expenses
|
(1,261,084 | ) | (175,267 | ) | ||||
Other Expenses
|
||||||||
Interest expense, net
|
6,992 | 3,270 | ||||||
Loss on sale of bonds
|
6,922 | - | ||||||
Miscellaneous expense
|
2,496 | - | ||||||
16,410 | 3,270 | |||||||
Loss before provision for taxes
|
(1,277,494 | ) | (178,537 | ) | ||||
Provision for income taxes
|
- | - | ||||||
Net Loss
|
(1,277,494 | ) | (178,537 | ) | ||||
Net loss per share - basic and diluted
|
$ | (1,022.00 | ) | $ | (176.94 | ) | ||
Weighted average number of common shares - basic and diluted
|
1,250 | 1,009 |
See notes to financial statements
3
BE ACTIVE BRANDS, INC.
|
||||||||||||||||||||||||||||
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIENCY
|
||||||||||||||||||||||||||||
YEARS ENDED DECEMBER 31, 2011 AND 2010
|
||||||||||||||||||||||||||||
Class A
|
Class B
|
Accumulated
|
||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
APIC
|
Deficit
|
Total
|
||||||||||||||||||||||
Balance, December 31, 2009
|
1,000 | $ | - | - | $ | - | $ | 1,000 | $ | (111,708 | ) | $ | (110,708 | ) | ||||||||||||||
Issuance of Class B Common Stock
|
- | - | 45.6 | - | 228,000 | - | 228,000 | |||||||||||||||||||||
Net loss
|
- | - | - | - | - | (178,537 | ) | (178,537 | ) | |||||||||||||||||||
Balance, December 31, 2010
|
1,000 | $ | - | 45.6 | $ | - | $ | 229,000 | $ | (290,245 | ) | $ | (61,245 | ) | ||||||||||||||
Issuance of Class B Common Stock
|
- | - | 220.0 | - | 1,100,000 | - | 1,100,000 | |||||||||||||||||||||
Net loss
|
- | - | - | - | - | (1,277,494 | ) | (1,277,494 | ) | |||||||||||||||||||
Balance, December 31, 2011
|
1,000 | $ | - | 265.6 | $ | - | $ | 1,329,000 | $ | (1,567,739 | ) | $ | (238,739 | ) |
See notes to financial statements
4
BE ACTIVE BRANDS, INC.
|
||||||||
STATEMENTS OF CASH FLOWS
|
||||||||
Year ended December 31,
|
||||||||
2011
|
2010
|
|||||||
Cash flows from operating activities
|
||||||||
Net loss
|
$ | (1,277,494 | ) | $ | (178,537 | ) | ||
Adjustments to reconcile net loss to net cash
|
||||||||
(used in) operating activities:
|
||||||||
Depreciation and amortization
|
308 | 514 | ||||||
Changes in Assets and Liabilities:
|
||||||||
(Increase) decrease in accounts receivable
|
8,662 | (2,726 | ) | |||||
Increase in inventory
|
(93,055 | ) | (140,103 | ) | ||||
Decrease (increase) in prepaid expenses
|
46,661 | (55,265 | ) | |||||
Increase in accounts payable and accrued expenses
|
59,126 | 92,090 | ||||||
Net cash used in operating activities
|
(1,255,792 | ) | (284,027 | ) | ||||
Cash flows from investing activities
|
||||||||
Purchases of property and equipment
|
(668 | ) | - | |||||
Cash flows from financing activities
|
||||||||
Proceeds from borrowings / credit line
|
46,922 | 116,079 | ||||||
Increase in due to officers
|
- | 85,650 | ||||||
Proceeds from private placement
|
1,100,000 | 228,000 | ||||||
Net cash provided by financing activities
|
1,146,922 | 429,729 | ||||||
Net increase (decrease) in cash
|
||||||||
and cash equivalents
|
(109,538 | ) | 145,702 | |||||
Cash and cash equivalents, beginning of year
|
169,191 | 23,489 | ||||||
Cash and cash equivalents, end of year
|
$ | 59,653 | $ | 169,191 | ||||
Supplemental cash flow disclosures
|
||||||||
Interest paid
|
$ | 8,627 | $ | 63,270 | ||||
Income taxes paid
|
3,406 | 526 |
See notes to financial statements
5
BE ACTIVE BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
Be Active Brands, Inc. (the “Company”) manufacturers frozen yogurt and fudge bars and offers ice creams in various flavors. The Company intends to expand its regional growth to a national level and global presence in sales of premium quality low-fat, low calorie, low-carbohydrate, vitamin and probiotic enriched frozen yogurt and products under the brand name of Jala.
The Company was incorporated March 10, 2009 in Delaware, is based in New York and provides its products through retail stores in New York, New Jersey, Connecticut, Massachusetts, Rhode Island, Maine, Pennsylvania, Ohio and Florida.
2. GOING CONCERN
The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. As shown in the accompanying financial statements for the year ended December 31, 2011, the Company incurred a significant net loss, had a working capital deficit and accumulated losses. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it become profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company through equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.
6
BE ACTIVE BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Financial Instruments
The Company considers the carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and accrued expenses and notes payable to approximate their fair values because of their relatively short maturities.
Accounts Receivable
Accounts receivable consist of amounts due from customers. The Company records a provision for doubtful receivables, if necessary, to allow for any amounts which may be unrecoverable, which is based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2011 and 2010, there was no allowance for doubtful accounts.
Inventory
Inventory consists primarily of finished goods held for distribution. Inventory is valued at the lower of cost (first-in, first-out) or market. In evaluating whether inventory is stated at the lower of cost or market, management considered such factors as the amount of inventory on hand and the distribution channel, the estimated time to sell such inventory, remaining shelf life and the current expected market conditions. Adjustments to reduce inventory to its net realizable value are charged to cost of goods sold.
Shipping and Handling Costs
The Company classified shipping and handling costs as part of selling expense. Shipping and handling costs were $129,015 and $64,411 for the years ended December 31, 2011 and 2010, respectively.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method.
Maintenance and repairs are charged to operating expenses as they are incurred. Improvements and betterments, which extend the lives of the assets, are capitalized. The cost and accumulated depreciation of assets retired or otherwise disposed of are relieved from the appropriate accounts and any profit or loss on the sale or disposition of such assets is credited or charged to income.
7
BE ACTIVE BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Revenue is recognized net of discounts, rebates, promotional adjustments, price adjustments and estimated returns and upon transfer of title and risk to the customer which occurs at shipping (F.O.B. terms). Upon shipment, the Company has no further performance obligations.
Income Taxes
The Company provides for income taxes under FASB ASC 740 – Income Taxes, which requires the use of an assets and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. A valuation allowance is provided when realization of deferred tax assets is not considered likely.
Tax returns for the years from 2009 to 2011 are subject to examination by tax authorities.
Advertising Costs
Advertising costs are expensed as incurred. Total advertising expenses amounted to $158,307 and $43,700 for the years ended December 31, 2011 and 2010, respectively.
Net Loss per Common Share
The Company computes per share amounts in accordance with FASB ASC 260 – Earnings per Share, which requires the presentation of basic and diluted EPS. Basic EPS is computed by dividing the income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the periods. Common stock equivalents are not included in the computation of diluted EPS when the Company reports a loss because to do so would be anti-dilutive.
As of December 31, 2011 and 2010, there were no common stock equivalents.
4. INVENTORY
For the years ended December 31, 2011 and 2010 inventory consisted of the following:
2011
|
2010
|
|
Materials
|
$118,546
|
$82,374
|
Finished product
|
178,445
|
121,561
|
$296,991
|
$203,935
|
8
BE ACTIVE BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS
5. PROPERTY AND EQUIPMENT
For the years ended December 31, 2011 and 2010, property and equipment consisted of the following:
2011
|
2010
|
|
Furniture & Fixtures
|
$ 2,276
|
$ 1,608
|
Less: Accumulated depreciation
|
(1,144)
|
(836)
|
$ 1,132
|
$ 772
|
6. NOTE PAYABLE, RELATED PARTIES
Note payable is a revolving credit facility at Signature Bank for $200,000, with interest at the prime rate (the prime rate of interest was 3.25% at December 31, 2011 and 2010) plus 1% per annum. The primary obligors on the facility are two Class A common shareholders of the Company, and the Company is a guarantor. Since all of the proceeds have been used by the Company, the outstanding balance is reflected as a note payable in these financial statements. Substantially all of the Company’s assets secure this note payable.
7. DUE TO OFFICERS
Due to officers consists of unsecured loans from two officers and a former officer of the Company, payable on demand without interest.
8. CAPITAL STOCK
Common stock consists of 1,000 Class A shares authorized, issued and outstanding at $.00001, par value, at December 31, 2011 and 2010.
There are 390 Class B shares authorized at $.00001, par value. There were 265.60 and 45.60 Class B shares issued and outstanding as of December 31, 2011 and 2010, respectively. Class B shares have the same rights as Class A shares with the exception that Class A shareholders have 10 votes for each share held. In addition, a majority percentage of the class B shareholders is required to approve most significant transactions, including but not limited to the purchase of any interest in the stock, assets or business of any corporation, partnership or other entity; the sale, lease or exchange of all or substantially all of the assets of the company; and any merger or consolidation of the Company with or into any other corporation.
9. INCOME TAXES
The Company has filed income tax returns for the years through December 31, 2011.
9
BE ACTIVE BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS
9. INCOME TAXES (Continued)
As of December 31, 2011, management has evaluated and concluded that there are no significant uncertain tax positions requiring recognition in the Company's financial statements.
As of December 31, 2011, the Company has net operating loss carryforwards of approximately $1,600,000 to reduce future Federal and state taxable income through 2031.
As of December 31, 2011, realization of the Company’s deferred tax assets of $600,000 was not considered more likely than not and, accordingly, a valuation allowance of $600,000 has been provided. The valuation allowance increased by $494,000.
As of December 31, 2011, components of deferred tax assets were as follows:
Net operating loss
|
$ 600,000
|
Valuation allowance
|
(600,000)
|
$ 0
|
For the year ended December 31, 2011, deferred income tax expense consisted of the following:
Net operating loss
|
$ 494,000
|
Change in valuation allowance
|
(494,000)
|
$ 0
|
A reconciliation of income taxes and the statutory rate was as follows:
Federal statutory rate
|
34%
|
Effect of state income taxes
|
4%
|
Change in valuation allowance
|
(38%)
|
- %
|
10. CONCENTRATIONS
Credit is granted to most customers. The Company performs periodic credit evaluations of customers’ financial condition and generally does not require collateral.
Sales to one customer of the Company accounted for approximately 52% and 31% of sales for the years ended December 31, 2011 and 2010, respectively. Amounts due from this customer represented approximately 18% and none of accounts receivable outstanding as of December 31, 2011 and 2010, respectively.
10
BE ACTIVE BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS
11. RECONCILIATIONS OF NET SALES
In accordance with FASB ASC 650-50 the Company classifies the following allowances as reductions of sales:
2011
|
2010
|
|
Gross sales
|
$2,571,977
|
$1,071,020
|
Less:
|
||
Sales discounts
|
52,075
|
26,585
|
Returns and allowances
|
379
|
230
|
Trade spending
|
945,569
|
-
|
Slotting fees
|
152,000
|
166,500
|
Net sales
|
$1,421,954
|
$877,705
|
12. RELATED PARTY TRANSACTIONS
An officer of the Company is a partner of a public accounting firm providing accounting services to the Company. For the years ended December 31, 2011 and 2010, the Company incurred $52,000 and $5,000, respectively, to the accounting firm for accounting and tax services.
The Company rents space from a Company that is owned by the Company’s shareholders. For the years ended December 31, 2011 and 2010, rent paid was $10,500 and $0, respectively.
13. SUBSEQUENT EVENTS
On November 15, 2012, two of the Class A common shareholders of the Company advanced $200,000 to the Company and on the same date, the Company repaid $198,000 of the revolving credit facility at Signature Bank.
In April 2012, the Company sold 14 shares of its Class B common stock for $70,000, for $5,000, per share.
In August 2012, the Company entered into a Securities Purchase Agreement to sell up to a maximum of $600,000 of the Company’s 10% Secured Convertible Promissory Notes (“Notes”). The Notes mature one year from issuance and interest of 10%, per annum, is accrued on the unpaid principal amount of the Note and paid upon maturity, or earlier prepayment or conversion, as defined.
Upon the closing of a merger, as defined, all outstanding principal and accrued, unpaid interest on the Notes shall automatically be converted into equity of the public entity. The number of conversion securities issuable upon conversion of the Notes shall be determined by dividing the outstanding principal amount of the Note and accrued interest on the conversion date by the conversion price in effect.
11
BE ACTIVE BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS
13. SUBSEQUENT EVENTS (Continued)
In August 2012 and November 2012, the Company sold $135,000 and $250,000, respectively, of the 10% Secured Convertible Promissory Notes to investors.
12